New South Wales will become the second state in Australia to introduce a property tax for foreigners buying homes next week.
The 4 per cent stamp duty for foreign buyers comes after four New Zealand banks followed Australia's lead and ceased lending to overseas buyers.
Westpac, BNZ, ANZ and ASB have all introduced policies that effectively rule out home loans for foreign buyers.
The New South Wales duty will be introduced from June 21 and from next year a 0.75 per cent land tax surcharge on foreign purchasers will be rolled out, New South Wales Treasurer Gladys Berejiklian said in an e-mailed statement to Bloomberg.
The measure, which comes on top of stamp duty that applies to all buyers, is expected to raise more than A$1 billion ($738 million) over four years.
Bloomberg reported foreign buyers in Sydney, many with a connection to China, have helped the city's median dwelling value to almost double since the end of 2008, according to CoreLogic Inc.
Home buyers in New South Wales currently pay A$40,490 in stamp duty on a property worth more than A$1 million, plus 4.5 per cent of the value above A$1 million.
The state of Victoria will increase the stamp duty surcharge for foreign buyers to 7 per cent from 3 percent from July 1, the government said in April.
The Reserve Bank of New Zealand is considering further regulatory measures to try and dampen Auckland's red hot housing market - including the possible introduction of debt-to-income ratios - which require banks to have accurate information about the income of those they lend to.
It is understood that the banks in Australia have not felt comfortable with the accuracy of some of the income information they get from foreign investors.